Further Developments In Administration Expenses

We have covered the issue of claiming rent against administrators on a number of occasions. However the issue of how much rent administrators of insolvent companies are obliged to pay remains a developing legal issue.

The Administration of the retail computer company, Game Group, has created a substantial amount of litigation (not least the earlier Charles Russell case of Game UK v Lazari [2012]). On the 1 July 2013 the High Court (Chancery Division) heard an application by administrators for directions and, when doing so, gave the landlord respondents permission to appeal to the Court of Appeal on the issue of the extent to which rent and service charges falling due both before and after the appointment of administrators were to be treated as expenses of the administration.

This was the question raised in the case of Goldacre (Offices) Ltd v Nortel Networks UK Ltd (In Administration) [2010] Ch. 455. In this case the Court held that administrators obligation to pay rent (where the property was being used) in full compliance with the lease. The administrators of Nortel had tried to pay only the rents for the part of the property the company still actually used. However the full extent of the property actually leased was very large and the court held that if the administration was making use of any part of the property then the tenant administrator should pay rent for the whole (as an "expense" of the administration). This principle was then extended by the case Leisure (Norwich) II Ltd v Luminar Lava Ignite Ltd (In Administration) [2012].

In the latest case the applicant administrators of the Game group applied to the court for directions, relating to the priority of the payment of rents and service charges (together with other charges falling due under the lease during the period of the administration). The Game Group was a High Street retailer and through subsidiaries was the tenant of a number of stores. The rent was payable in advance on the usual quarter days. The administrators had been appointed the day after the quarterly rent fell due under a number of leases. The landlords under a number of sample leases are the respondents to the application.

Following Goldacre v Nortel and Leisure (Norwich) II Ltd v Luminar Lava Ignite Ltd the position appeared to be that;

1. where rent was payable in advance and fell due for payment prior to the commencement of the administration, then it was not payable as an administration expense even though...